The China Venture

The apparent policy of the partner company to channel workers to the joint venture affected
also for the distribution system as the partner would sabotage the initially successful efforts to
outsource distribution to a third party.
Problems like these are reported by many companies operating in China. Many of these
problems will not be totally avoidable. It is crucial, however, how a company can react in face
of such problems and challenges.
CGC's management was well aware of the problems at an early stage on. After the initial
phase of joint venture foundation was completed, the management's interest in their China
project did not diminish. This was due to the significance of the venture for the relatively
small and internationally inexperienced company. For this reason as well as the short term
goals of the joint venture, CGC realised very early on that a re -evaluation and subsequent
repositioning of the joint venture was necessary.
There were enough ideas for such a repositioning, ranging from a stop to new employees, to
the outsourcing of distribution. The company had also hoped that its contract, capital
majority, and management authority would allow it to alter operational strategy relatively
easily. CGC had to realise, however, that a repositioning within the current structure could not
be achieved. It had not talked with its partner about eventualities that would make massive
changes of the operations of the company necessary. More importantly, CGC realised only
later on that there existed a mismatch of goals between the foreign and Chinese partner, who
seemed to be mostly concerned with cutting down its own work force.
Therefore, any drive for change met with fierce opposition. Combined with a certain lack of
understanding of local procedures, the working climate deteriorated massively, until CGC had
to realise that the venture had failed entirely. CGC ultimately had lost all of its capital.
Just as in the case of LGC, also CGC failed to provide for the possibility of massive
restructuring and repositioning in the early phases of market entry planning. In their
evaluation of market entry methods, both companies did not give enough weight to the
flexibility that a wholly owned, or de -facto wholly owned company would provide for the
foreign investor. Both companies might have chosen a joint venture agreement even if they
had taken such possibilities into consideration. But by ignoring the possibility of the necessity
of major changes in operational and strategic direction, the companies did not plan their
market entrance in an optimal way.
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